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Is there a Statute of Limitations Applicable to Pennsylvania UDAP Investigations?

law BHThe Pennsylvania Office of Attorney General (“OAG”) takes the position in investigations related to the Unfair Trade Practices and Consumer Protection Law (“UDAP”)[1] that there is no statute of limitations applicable to actions by the OAG. There is no published decision in Pennsylvania on whether a statute of limitations applies to the OAG.[2] This article examines the origins of that claim, and whether there should be a limitations applicable to place some time limit to prevent overly burdensome or broad investigations or enforcement litigation matters.

The general proposition that statutes of limitations do not apply to the Commonwealth as a “sovereign” is correct. This doctrine dates back hundreds of years under the idea that time cannot run against the “king.” The theory today is that time should not be considered to run against the Commonwealth when the state is exercising some sort of public right. In other words, no limitation period applies to instances where the Commonwealth needs to enforce its rights under a contract, or where the Commonwealth holds a claim for negligence (such as negligent construction of a bridge, etc.). There is a difference between vindicating public claims for taxpayers and an unfettered right of law enforcement powers under statutes providing for penalties.

Another exception to the rule of time not running against the state is when there is an express statute limiting conduct by the Commonwealth. With regard to “civil penalties,” the Legislature enacted the following:

The following actions and proceedings must be commenced within two years: . . .

(5): An action upon a statute for a civil penalty or for forfeiture.

42 Pa. C.S.A § 5524(5) (emphasis added).

Despite that clear articulation by the Legislature, the OAG takes the official position that this section does not apply to the state government. As the OAG routinely seeks imposition of civil penalties in UDAP actions, it is necessary to first examine what exactly a “civil penalty” is. Trujillo v. State Farm Mutual Automobile Association, 54 Pa. D. & C.4th 241 (Pa. Com. Pleas 2001) (emphasis added), defined what constitutes a civil penalty:

An action for civil penalty is distinct from a bad faith action because the former involves a governmental entity, while the latter provides for private compensation. See Black’s Law Dictionary, 647, 1154 (7th ed. 1999) (defining a civil penalty as “[a] fine assessed for a violation of a statute or regulation,” and defining a fine, in turn, as “payable to the public treasury”) . . . .”

The question then becomes, is section 5524(5) applicable to the OAG? The OAG relies on Sellars v. Pennsylvania Insurance Department, 564 A.2d 270 (Pa. Commw. 1989), where the Insurance Department initiated an administrative proceeding. As part of the outcome of the administrative proceeding, the Insurance Commissioner imposed civil penalties and the appellate court ruled that section 5524(5) did not apply to the Insurance Department in that setting. There is an important distinction. The Insurance Department has an entire internal administrative procedure set up to address compliance issues. The Sellars case was not a lawsuit commenced by the Insurance Department in a court. The OAG does not have internal administrative procedures, with administrative law judges making determinations. If the OAG believes that UDAP has been violated, the only recourse is to file a lawsuit. When the OAG avails itself of judicial remedies in a court, the action is not the same as an administrative setting. Statutes of limitations limit the time period to initiate lawsuits in the courts.

If the OAG is correct that section 5524(5) does not apply to the Commonwealth, then to whom does the section apply? As noted above, a “civil penalty” is defined as an action by a governmental entity to obtain a fine for violation of a statute. To conclude that section 5524(5) does not apply to the Commonwealth, it is necessary to conclude that private citizens somehow have rights to commence actions upon a statute for a civil penalty or for forfeiture.

Of the over 300 current Pennsylvania statutes providing for “civil penalties,” only five permit private persons to file an action and recover civil penalties. Thus 98% of the statutes that contain provisions for civil penalties can only be sought by the Commonwealth. Further, of those five that actually would permit a private litigant to commence such an action, not a single one of those five sections existed when the Legislature enacted section 5524.

If the OAG is correct that this section cannot be asserted against it, then the Legislature passed a statute of limitations that covers only five statutes, and excludes over 98% of laws that provide for imposition of civil penalties.[3] Even more significant, when section 5524 was enacted, none of these five sections existed, meaning that the Legislature would have enacted a statute of limitations that applied to absolutely nothing. Adopting the OAG’s interpretation renders that statute of limitations meaningless and is therefore unreasonable.

Recently, in Commonwealth v. Cash, the Commonwealth Court applied 42 Pa. C.S.A § 5524(5) to the Commonwealth’s forfeiture action, which further supports the statutory interpretation that there is a statute of limitations. 2015 Pa. Commw. Unpub. LEXIS 752, *16, 124 A.3d 426 (Pa. Commw. Ct. 2015). The Court held that the “Commonwealth was required to file its petition for forfeiture within two years of when police confiscated the items from Cash.” Id. (internal citations omitted).

It logically follows that the same provision should be applicable to the Commonwealth for actions seeking civil penalties as well. Therefore, the OAG should be bound to a limitations period of two years when seeking civil penalties in a civil action in a court. When dealing with investigations with the OAG, it is critical to raise this issue as early as possible in the process so as to limit the extent of the investigation, or limit the claims in a UDAP enforcement action.

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[1] 73 P.S. §§ 201-1—201-9.3.

[2] The Pennsylvania Super Court did find that there is a six year statute of limitations under private UDAP actions. See, Gabriel v. O’Hara.

[3] The statute also likewise limits actions for “forfeiture.” Again, only the Commonwealth can file an action for a forfeiture. See, e.g., 42 Pa. C.S.A. § 6801 (forfeiture of property for violation of controlled substances act). Linking actions for “forfeiture” and “civil penalties” together in the same statute lends additional support to the argument that the Legislature must be presumed to have this section apply to the Commonwealth.

[4] The statute also likewise limits actions for “forfeiture.” Again, only the Commonwealth can file an action for a forfeiture. See, e.g., 42 Pa. C.S.A. § 6801 (forfeiture of property for violation of controlled substances act). Linking actions for “forfeiture” and “civil penalties” together in the same statute lends additional support to the argument that the Legislature must be presumed to have this section apply to the Commonwealth.

About Author: Stephen M. Hladik

Stephen M. Hladik, Esquire, is a principal in Hladik, Onorato & Federman, LLP. Formerly the youngest Deputy Attorney General in charge of the Harrisburg office of the Pennsylvania Bureau of Consumer Protection, Hladik brings a broad range of experience to his mortgage foreclosure, bankruptcy, tax sale, and UDAP legal practice.
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